Do Oil and Biodiesel Mix?

Nova Biosource Fuels Inc. is headquartered in Houston-the heart of America's oil industry. The biodiesel company has several former oil executives and industry professionals on its payroll who think there's room enough in Texas for both fuels.
By Kris Bevill | June 17, 2008
Houston has long served as the nation's oil epicenter. It's the headquarters of some of the largest oil companies in the world, and since the 1990s, more than 30 percent of the city's 2 million people are employed by the oil industry. Knowing all that makes one wonder why a biodiesel company would want its headquarters in the same city. Are they oblivious or genius?

The genius behind it is yet to be proven, but the executive members of Nova Biosource Fuels Inc. in north Houston are certainly not oblivious to their proximity to Big Oil. Actually, they're very keen to the idea that having a close relationship with the oil industry could help their company. Most of the executives at Nova are former oilmen and know what the people holding the money at oil companies are looking for in new business ventures.

Nova's Chairman and Chief Executive Officer Ken Hern has a long history with the oil business. His resume lists an impressive 13 years as an executive with Texaco. From 1981 to 1984 he served as president of Texaco Saudi Inc. From there he moved to Nigeria and worked from 1984 to 1989 as vice chairman and managing director of Texaco Nigeria Ltd. From 1989 to 1994, when he retired, he served as president of Texaco Brazil. He dealt in oil in Baghdad and even met Sadaam Hussein while making deals for Texaco Saudi. He knows the ins and outs of the fuel industry and is serious about the biodiesel industry.

Hern says Nova would be foolish not to work with oil companies and try to get their interest. However, he says, they'd prefer to work jointly with oil companies rather than be bought out by them. "Nova's successful with or without an oil company," he says. "Oil companies are our clients so we want to satisfy their needs." For now, he says, oil executives like what they hear from Nova but they're waiting for the company to expand its production capacity. "We're sensible about it because we all come out of those companies," Hern says. "We know what their drivers are. Quality is paramount. Cost is paramount. Because, after all, they're out there serving the motoring public every day, and right now truckers are parking their big rigs on the streets of Washington, D.C., because of cost."

Rusty Sammons, vice president of Nova's refining operations, also started in the fuel industry at an oil company. He began working at Exxon in 1995 as a mechanical engineer and worked into refinery profitability and energy analyst positions as well as other planning and supervisory roles at Exxon and ExxonMobil before leaving to join Nova. He agrees that oil companies should want to work with biodiesel companies, but he's realistic about how that will happen. "The foundation of energy in this country has [and] will, for all practical purposes, be petroleum," he says. "We need to focus on utilizing that petroleum base for higher value [products] and figure out a different way to supplement and move our vehicles, and also to focus on mass transit. Not in our lifetime will we ever see a decrease in the demand for the petroleum base."

Sammons thinks the public is better served by using the country's petroleum supply for the production of plastics and other products, and to supplement the petroleum needed for fuel with something else, such as biodiesel. However, the industry is still in its infancy and oil companies won't make "big plays" until the industry has been legitimized, he adds. Although that's true in the case of biodiesel, oil companies are investing in renewable fuels that have yet to be legitimized (see sidebar on page 68-69), although not to any great extent, yet. So why are those companies willing to invest millions into cellulosic ethanol production or deep-sea oil drilling that has yet to be proven successful when they could be putting that money in an already established method of fuel production? "That is the question of the century," Hern says.

The Typical Answer
The answer could be that there's not enough feedstock available for a sufficient amount of fuel to be made and the oil companies are aware of that. Hern knows it too, which is why his company uses technology that allows for a variety of feedstocks to be utilized for biodiesel production. "If we had enough raw materials we could cause a paradigm shift of diesel fuels in America," Hern says.

According to Hern, Nova employs a patented propriety process that uses a heterogeneous catalyst to seamlessly transition between sources of feedstock with varying percentages of free fatty acids (FFAs). Nova's equipment can run a feedstock with virtually no FFAs and immediately afterwards run a feedstock with a relatively high percentage of FFAs with no problems. Fish oil, corn oil, poultry fat, tallow, yellow grease and brown grease can all be used. Hern says they are currently using feedstocks that consist of no higher than about 10 percent FFAs. "That's really the difference," Hern says. "The other guy can do it, but he's got to run an acid esterification. We don't have to do that."

Because of their capabilities, Nova can use cheaper feedstocks than are available to most other producers. While other biodiesel producers may claim they are multifeedstock, they still have to blend whatever supplemental feedstock they get with soy oil, Hern says. Nova doesn't have to do that. They also don't use feedstocks that could be used for food
products. Other than that, they'll buy whatever happens to be the cheapest option on the market, even low-grade butter when it recently became available.

Although somewhat controversial, Hern has no reservations about using imported palm oil. "If we can get it at the right price, we're going to use it," he says. Hern is not interested in virgin palm oil, though, he has other ideas. "I wouldn't buy that [virgin palm oil] because first, I don't want to pay that price and second, because I don't want to take it out of the mouths of people who could use it," he says. Instead he is researching what he calls "dregs"-secondary forms of palm oil that are cheaper and aren't used as a food source.
Nova's process is unique in that it is a continuous production process rather than a batch method. They can produce biodiesel that exceeds ASTM standards in 10 hours rather than the conventional 40-hour process.

The result of Nova's production process is a crystal-clear fuel that smells like mineral oil and runs better than conventional diesel in motor engines. It's even safe enough to drink, although Hern doesn't recommend pouring a glass of biodiesel to accompany your next meal.

Breakthrough technology comes at a cost, and Hern admits that it costs more to build a Nova facility than a conventional biodiesel plant. He says they can't construct a plant for less than $1.25 per gallon, but it's worth it in the long run. "The secret to success in the biodiesel industry is not what you pay to build a plant, it's what your feedstocks cost you and what you can sell [the biodiesel] for," Hern says.

Hern has the statistics to back it up. Nova is on a short list of biodiesel producers currently expanding production capacities. The flagship of what the company hopes will one day be its biodiesel empire is a 60 MMgy facility in Seneca, Ill. In April, the company announced it had produced 1 million gallons of biodiesel from the first 20 MMgy train (the line of machinery required to produce 20 MMgy of biodiesel) at the facility and that they expected to start up the second and third 20 MMgy trains in the near future. "It's just a joy to operate," Sammons says. "It's a really nice facility."

Nova built the Seneca facility after constructing plants for Sanimax in Wisconsin, Clinton County Bio Energy LLC in Iowa and Scott Petroleum Corp. in Arkansas. Nova purchased the 10 MMgy plant in Clinton in 2007 and currently operates it at capacity. The company owns a 50 percent share of the biodiesel produced at the Scott Petroleum facility. A mechanical pump failure caused the facility to cease operations in the spring, but repair work was underway and at press time, the plant was expected to be operational again in mid-June. The 20 MMgy facility was operating at capacity before the shutdown.

The company is in pre-construction mode at a 20 MMgy to 60 MMgy facility in Oklahoma. Work has yet to begin on Nova Biofuels Muskogee, but Hern says he has six of Nova's 20 MMgy trains sitting in storage just waiting for the right facility to be put to use. The company hopes to be producing 80 million gallons of biodiesel by the end of the year.
"I believe in the long term we could be economically viable," Hern says. "It's hard right now. But our company's objective is to try to use material that people don't eat, to make products that are inexpensive enough to compete with regular oil, and to make it in a volume that it's available to the motoring public. It's a noble objective. Of course, along the way we've got to make a reasonable return for our share holders."

Nova has partnered with several companies to achieve its success. Kaluzny Bros. Inc., based in Joliet, Ill., provided funding for the Seneca facility. Its subsidiary, Lipid Logistics LLC, supplies the feedstock. "ConAgra is our big off-taker," Hern says. "They've got access to huge markets out there. They're one of our partners and they trade in commodities all the time. They're smart, big, well-connected and easy to work with." Nova has yet to export any of its products overseas.

Support for the Industry
As Nova produces and sells its product, the company is an anomaly in a struggling industry. What the industry needs, according to Hern, is a "runway" that will allow it to spread its wings and grow. "We need government support, government understanding and access to capital," he says. Hern is passionate about his product and how it impacts national security. "We import $1 billion worth of oil a day," he says. "To lay that kind of fire power out there is not good."

Renewable fuels, such as biodiesel, can play an important role in increasing our country's energy independence and decreasing our reliance on less-than-friendly Middle East nations. However, in order to compete with other fuels, biodiesel needs a more powerful lobby. Ethanol has been able to hold its own against oil because it has a big lobby that has been working to promote ethanol for decades. "We have a biodiesel lobby-the National Biodiesel Board has an office [in Washington, D.C.]. We are a member of it," Hern says. But maybe that's not enough. Maybe the NBB just needs more people like Hern to speak out.

Hern says he would be willing to personally lobby more and has done so in the past. "I say, 'Talk to me. I've got a product right now that's ready for the market today. It's high quality. Help me-my industry,'" he says. "It's ready today. Cellulosic is a decade away. We ought to be working on it [cellulosic], but I'm saying if you get me a feedstock I'll make you the biodiesel."

Kris Bevill is a Biodiesel Magazine staff writer. Reach her at or (701) 373-0636.
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